Assignment:
John is forecasting a stock's price in 2011 conditional on the progress of certain legislation in the United States Congress. He divides the legislative outcomes into three categories of "Passage", "Stalled" and "Defeated" and the stock's performance into three categories of "increase", "constant" and "decrease" and estimates the following events:
|
Passage
|
Stalled
|
Defeated
|
|
Probability of legislative outcome
|
20%
|
50%
|
30%
|
|
Probability of increase in stock
|
|
|
|
|
price given legislative outcome
|
10%
|
40%
|
70%
|
|
Probability of decrease in stock
|
|
|
|
|
price given legislative outcome
|
60%
|
30%
|
10%
|
A portfolio manager would like to know that if the stock price does not change in 2011, what the probability that the legislation passed is. Based on John's estimates, this probability is:
a. 15.5%
b. 19.6%
c. 22.2%
d. 38.7%